The Chinese government is apparently getting serious about supporting small and medium sized enterprises (SMEs) within its borders. This is perhaps part grudging acknowledgement of the country's thriving, homegrown private sector and part proactive attempt to reap the benefits of entrepreneurs who are leading hi-tech product development and broad-based economic gains throughout China.

It is understandable why the government would want to provide assistance to a sector that comprises 99.6% of all of the country's businesses and accounts for 58% of the gross domestic product - one recent example that comes to mind is the establishment of a national SME association in early December.

As the country looks to maintain a competitive edge in the production of advanced technologies while promoting clean, efficient industrial growth, it is increasingly turning to a new generation of Chinese businesses with a focus on innovation and smart, sustainable operations. Beijing Shenwu Thermal Energy Technologies is in many ways a poster child of this recent trend.

Harvard Business School will be holding its annual Social Enterprise Conference on March 4th. So far there are 17 tentatively scheduled panels including topics such as: Microfinance; Global Healthcare; and The Mobile Phone Revolution. Speakers include Cheryl Dorsey, President of Echoing Green, Victoria Hale, Founder & CEO of the Institute for One World Health, and Daniel L. Doctoroff, Deputy Mayor of the City of New York. You can also hear new ideas rapid-fire style at the business plan competition where contestants have 30 seconds to pitch their innovative idea, followed by a 2 minute/person final round.

Tickets sell out quickly, so consider registering soon. If anyone is going and would like to blog about it as a guest poster here at NextBillion, please drop us a line.

Recent stories from around the world highlight different aspects of the BOP theory in action – and all are collected in our BOP Newsroom.  A selection of some of the latest BOP news:

ADB Approves $320m Loan to Pakistan for IT and Financial Services

An ADB loan package totaling US$320 million will improve access of Pakistan's poor to wider financial services.  Key activities will include:

• the promotion of better technology for delivering financial services more efficiently and at lower cost
• expanding the range and quality of financial products and services including those for the Islamic market
• developing public-private partnerships
• stepping up reliable business and credit information and systems
• expanding fast, reliable and lower-cost remittance services for overseas workers
• capacity building for financial institutions and authorities
• support for literacy (financial and basic) to improve access to finance and its utilization for sustained economic growth.
  

Mexican Firms Explore Microinsurance

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The Development Through Enterprise and NextBillion.net team is happy to welcome Lauren Abendschein to WRI.  Lauren will be working with us for 5 weeks - the length of Oberlin College's winter term.  She will graduate from Oberlin with a B.Mus. this spring and finish up her B.A. in Politics in Kenya next fall. She was an intern at Ashoka's Integrated Technology Initiative last summer. In 2005, Lauren was the project manager for a grant application to the NIH. She was also an intern in the marketing department at Bloomberg. Lauren has been a leader for Amnesty International chapters in high school and at college. Next semester, she will be teaching an ExCo (student led course) on Social Entrepreneurship at Oberlin.
 
She loves to travel, hike, perform and listen to music, and make chocolate desserts. Though her primary instrument is the French Horn, she's very interested in non-Western music and instruments, particularly the Kora and Sitar.

Taking a page from Thomas Friedman’s The World is Flat, a group of business students in India are piloting a new idea to share some of the data processing wealth of India’s urban centers with its villagers. The team, Profits for People (also known as ProGreen), has developed a model whereby small rural and semi-urban cooperatives can do the data-entry and conversion services of large Business Process Outsourcing (BPO) companies at a fraction of the cost.

Abhijit Banerjee and Esther Duflo, both of MIT’s Poverty Action Lab, published a working paper back in October 2006 called The Economic Lives of the Poor. I am not usually one to urge an economics paper on anyone, but I will break from tradition here. Print this paper, take it home this weekend, and read it. I promise you that it will be 45 minutes well spent.

The Economic Lives of the Poor is based on 13 countries’ household surveys, and is one of the first publications to document spending patterns among very poor people. (We at WRI are currently working on a similar, more extensive analysis of such spending patterns, using similar survey data from 100-plus countries). While Banerjee and Duflo are not writing for a business audience – their paper will be published in an academic economics journal – it should be required reading for those of interested in the connection between business and development.

I like this paper so much because it shows that the ultra-poor – earning $1 or $2 per day – do in fact make choices about how to allocate their spending. Despite the ability to choose, the poor often remain so because they are badly served by the private and public sectors – victims of monopoly and monopsony. Of course, it is never simple, and Banerjee/Duflo don’t pretend that it is.

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An article in last Friday’s International Herald Tribune details the business strategy behind frenzied takeover bids for Indian mobile phone company Hutchinson-Essar by Vodafone, Reliance, Essar, and others.  Further into the article, writer Anand Giridharadas describes the BOP strategies of McDonalds, General Motors, Nokia, and others.  To NextBillion regulars, this article may seem like old news – that companies faced with flattening sales projections in their home markets would expand to the base of the pyramid just makes sense.  But to me, it’s great to see, since we’ve been trying to tell companies that the BOP is their next frontier for years now.  Between mainstream articles such as this one and academic research like Banerjee and Duflo’s The Economic Lives of the Poor, the case for BOP strategy and action has never been stronger.  

How are these companies reaching out to the BOP?  A few examples from the IHT article:

• General Motors is now figuring out how to make money on small car sales.
• McDonalds has cut prices by 25 percent, including 15-cent per serving soft ice cream.
• Coca-Cola introduced an 11-cent “mini-Coke” bottle.
• Nokia recently came out with a cell phone that retails for less than $50.
• Hutchinson-Essar charges $23 for a lifetime package of unlimited incoming calls.
  

Read the full article, India’s Vast Market Lures Telecom Giants, for more evidence of the importance of BOP markets to multinational corporations’ growth plans.

Montgomery County in Maryland is struggling with community backlash from efforts to provide employment structures and services to day laborers. According to yesterday’s Washington Post, city officials are hoping to eventually alleviate the tension by training workers to run their own enterprises, but in the mean time negotiations for a structure continue. This tension is far from unique to Maryland – all over the world day laborers congregate to offer their services. Yet for communities that struggle with ‘not in my back yard,’ constructively engaging with day laborers can prove to be a win-win solution, as an innovative South African organization has shown.

For many suburbanites, success is sometimes measured by one's ability to keep up with the Joneses.  For me, the cliché changes only slightly – to keeping up with the Christines.  My friend and colleague Christine Bowers of the World Bank's Private Sector Development Blog has an enviable tendency to scoop me on stories I've been meaning to write.  It's happened twice in the past few days: first, Christine reviewed two books I've read and have been meaning to comment on; then today, she updated her blogroll, a task I've been meaning to do for a while now (and just completed).  Anyway, my hat's off to you, Christine.  Go read the PSD Blog if you don't already – and keep reading to hear what I have to say about Make Poverty Business, You Can Hear Me Now, and which new blogs are worth reading and tracking in the BOP universe.

Books are a tricky subject.  BOP books are a trickier subject, since it's difficult to be groundbreaking unless you have a huge amount of new data or a wildly different strategic innovation.  Peter Wilson and Craig Wilson (no relation, I think) attempt to be groundbreaking in their new book, Make Poverty Business.  Unfortunately, their well-meaning attempt falls well short of success.  I received a copy of the Wilsons' manuscript some months ago, and gave it a close read.  I kept waiting for some sort of new theory, example, strategy, or data – but as I read, none came. 

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It’s a classic non-profit problem: organizations find themselves bowing to the needs of their funders rather than their constituents. And of course, there is never enough funding. NESsT is taking an innovative and holistic approach that helps nonprofits increase their long-term viability and independence by generating some of their own resources through social enterprise.

In some ways NESsT is similar to Unitus – another Social Capitalist Awards favorite (NESsT was a finalist in 2006). Using a philanthropic investment fund NESsT provides financial and capacity-building support to a select portfolio of social enterprises owned and operated by civil society organizations in Central Europe and Latin America. NESsT works to develop techniques to generate revenues that diversify the financing base and further the mission of the parent nonprofit organization.

WaterHealth International (WHI) has recently attracted over $11 million in venture capital from investors including Dow Venture Capital, ICICI Bank, Plebys International LLC, and SAIL Venture Partners, L.P.. WHI provides innovative business solutions to one of the world's most desperate health crises, the lack of safe, clean and affordable water for the more than two billion people who have little or no access to it.

WHI has developed a model that incorporates an innovative, cost-effective technology designed for the poor, with a franchise model to streamline marketing and distribution and assure uniform water quality and service. The model can be customized to take into account the needs of rural and urban markets for low-cost safe water. WHI invests in health and hygiene education programs as part of its normal business practices to combat waterborne diseases in the communities it serves.

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Momentum continues to build for business' role in development.  The venerable Global Philanthropy Forum will hold its annual, invitation-only conference from April 11 to 13 of this year.  The conference's title?  Financing Social Change: Leveraging Markets and Entrepreneurship.  Previous years' topics have focused more on philanthropy; this year the Forum has caught on to the growing trend of 'philanthropreneurship' (apologies to The New York Times for that one), a blended approach to giving that focuses on building profitable, sustainable businesses.

The agenda looks great; so does the speaker list.  Climate change, health, and poverty are primary breakout topics; the Forum obviously understands the cross-sectoral impacts at play.  These sessions are complemented by keynotes and plenaries by notable leaders in each field, giving attendees a blend of high-level thought and detailed action planning.  Confirmed speakers include NextBillion allies Kurt Hoffman (Shell Foundation), Mary Ellen Iskendarian (Women's World Banking), Tim Wirth (U.N. Foundation), and other notables.

Check it out – and hope for an invitation soon.  If not, be sure to browse previous years' content, including a speech by Bill Clinton at last year's Forum.

When it comes to marketing to the BOP, the challenges go well beyond simply finding a product or service that is useful. Successful organizations have spent years refining their models before finding an effective way to reach the poor as consumers. Those organizations that have found innovative ways to reach the BOP have been well rewarded (see yesterday’s post about WaterHealth International).

In concert with increasing attention by development practitioners, behavioral economists are turning their efforts toward the BOP market. A recent article in Harvard Magazine describes the work of one such economist, Nava Ashraf:

Ashraf is now working with Population Services International—a nonprofit organization that seeks to focus private-sector resources on the health problems of developing nations—on a project in Zambia to motivate people to use a water purification solution known as Clorin. “We can use what marketing people have known all along,” Ashraf says. “There are ways of manipulating people’s psychological frameworks to get them to buy things. How do you use this knowledge to get them to adopt socially useful products or services? It’s so practical, and very important in development, for anybody who wants to help people reach their goals.”

At a time when development organizations and businesses are increasingly finding success through engaging with the BOP as consumers, attention to this market couldn’t be more important.

Aquaculture was supposed to be the next Green Revolution, a marine version of the push to "modernize" and streamline agriculture in the developing world.  The results have drawn comparisons to the fallout, both positive and negative of corporate agriculture that deserve mentioning.  Yes, shrimp farms create massive increases in output without overfishing the oceans because production is heavily controlled and concentrated in a smaller area.  But this growth is driven essentially by a chemical soup the shrimp are harvested in that can cause productivity to drop overtime and lead to destruction of the local ecosystem. 

 

Whenever I talk about a problem like this, I am always happy to produce examples of companies like BioCentinela that have faced the sustainability challenge rather than dodging it as "not our problem" and learned to thrive in a world of environmental constraints. 

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The four newest organizations in the activity database have remarkably different business models for engaging with the BOP, yet they all do so successfully. Equal Exchange has shaken up traditional distribution chains and created value by cutting out multiple intermediaries and sharing risk with coffee producers. Along similar lines, TransFair USA has benefited the BOP through proving the demand for fairly traded goods. On the other hand, Population Services International has shown that rigorous application of traditional for-profit business techniques can be extremely effective for achieving social goals. MicroCredit Enterprises has mobilized private sector investment to support microfinance institutions, further illustrating new applications for old models. Check out more detailed descriptions below and in the activity database.

MicroCredit Enterprises

MicroCredit Enterprises is committed to reducing poverty by mobilizing private investment capital to finance micro-businesses of poor families throughout the developing world. MicroCredit Enterprises gears its entrepreneurial results to produce jobs, sustain micro-businesses and improve human lives.

MicroCredit Enterprises leverages the collateral assets of individuals and institutions to borrow debt capital in the United States which is channeled through overseas, locally-run, non-governmental microfinance organizations in order to make thousands of tiny business loans to local entrepreneurs. MicroCredit Enterprises' reverses the cycle of poverty in economically distressed countries using the tools of the marketplace to provide self-help opportunities to millions of impoverished women and their families.

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